Famous Brands toasts 15% jump in earnings, but it’s tough going

Business might be good, but it’s tough going, admits leading branded food services franchisor Famous Brands as it looks for growth in home deliveries and drive-through offerings.

Acknowledging that rolling blackouts have had an impact across all its divisions and created a challenging environment, the holding company for Wimpy, Steers, Vovo Telo and associated retail brands said it is offering consumers great deals and loyalty programmes. 

With evening sit-down trade in its restaurants still not back to pre-pandemic levels and consumers favouring earlier bookings, user-friendly apps and changing expectations have unlocked food delivery as a sustainable category. This is why Famous Brands is expanding delivery services and rolling out smaller convenience formats, and growing its drive-through restaurant footprint.

The group owns 2,887 restaurants and 17 restaurant brands. It has 2,518 restaurants in South Africa, 65 in the UK and 304 elsewhere in Africa and the Middle East. It operates franchised, master-licenced and company-owned restaurants, based on four core pillars: Brands, Manufacturing, Logistics and Retail.

Revenue for the group was up a healthy 15%, to R7.4-billion (from R6.5-billion last year), which Famous Brands attributes to improved trading conditions across most markets after the lifting of Covid restrictions.

“Brands” revenue was up 21% to R1.1-billion (from R918-million in 2022) as restaurant turnovers improved, resulting in higher franchisee fees, said the group, as it posted higher sales for the year ended 28 February 2023 and declared a final dividend of 233c/share.

Revenue from its “Leading Brands” division (Steers, Wimpy, Mugg & Bean) was up 17% to R904-million, while revenue for the Signature Brands (Lupa Osteria, Mythos, Paul and others) improved 40% to R203-million. 

The restaurant industry is highly exposed to rolling blackouts, resulting in lost revenue, increasing operating costs and food wastage. The group is working with its franchise partners to mitigate the worst impacts of the power outages. All brands have had to manage their menu price increases carefully to balance protecting their profitability while offering value to consumers in an increasingly inflationary environment.

This, it said, required “careful price management and robust negotiations with suppliers”.

Operating profit has increased by 37% to R861-million (up from R630-million; headline earnings per share, pertaining to its core business activities, increased by 37% to 488c. The group said that with consumers under more pressure and a competitive environment, it had to compete even harder for a share of the wallet.

Last year’s strong recovery in earnings, cash generation and overall financial position, after the lifting of Covid restrictions – first eroded by local economic conditions, including weak GDP growth, high inflation and low levels of consumer spending – was dealt a harsh blow by intensified rolling blackouts after September.

It said its UK Wimpy business was challenging due to the impact of the Russia-Ukraine war, higher energy costs and a cost-of-living crisis. The UK recorded revenue of R142-million (up YoY from R133-million), and operating profit increased 12% to R19-million, before impairment. 

Manufacturing turnover was up by 8.5% to R3-billion, driven by strong volumes and inflationary price increases. Operating profit increased by 0.8% to R302-million, attributed to increased volumes and pricing. 

Internal cost inflation increased by 1% to 6%.

Logistics revenue increased 16% to R4.7-billion, driven by increased volumes and prices, while operating profit rose by 89% to R114-million (from R60-million in 2022). 

Famous Brands received a R14-million insurance payout for business interruption related to the civil unrest in July 2021. 

The Retail division grew revenue by 23% to R273-million (2022: R222-million). Operating profit decreased by 91% from R2-million in 2022 due to coffee product write-offs and a global shortage of coffee. Famous Brands owns the popular House of Coffees brand. 

The Retail division also launched 13 new products, including variants of Wimpy frozen chips, hash browns and pork bangers, plus new variants of sauces and meat products.

After considering the group’s good performance in 2023 and future outlook, the board declared a final dividend of 233c/ share. A total of R363-million is expected to be paid to shareholders by 10 July 2023. 

The group expressed concern about South Africa’s weak economic prospects and high levels of blackouts, saying in March that it implemented franchise partner financial relief in SA, which will include a lower royalty and marketing percentage on sales generated during blackouts. DM